Leveraging Voice Over IP
for Tangible Business Results
from GlobalPhone Corporation
Leveraging Voice Over IP for Tangible Business Results
“Several key improvements have
emerged during
the past couple of
years making VOIP
technologies ready
for prime time”
Leveraging Voice Over IP for Tangible Business Results
For most organizations in business today, a phone system is both an asset as well as a liability.
The majority of companies rely on their phone system for mission critical operations as a lifeline
to communicate between their employees and with their customers. But all too often, the cost of
maintaining a business phone system results in unnecessary expense that has a direct impact on
the bottom line.
Over the past few years, it has become increasingly more important for businesses to leverage
technology to run efficiently and cost effectively. One such enabling technology is Voice Over Internet Protocol (VOIP), also called Internet Telephony, which changes telephone calls into data that
is transmitted over a corporate data network and externally over the Internet. This technological
advancement can offer your enterprise a more cost-effective business phone system and a host of
new productivity improvements for your company.
The History of VOIP
Although VOIP has been around for years, it is only recently that the technology has matured to
the point where it can carry high quality business communications. The earliest implementations
of VOIP used PC-based solutions that were unreliable and poor quality. While users could get
“free” calls across the Internet, the service was not robust enough to connect to the public switched
telephone network, and certainly not reliable enough for business use.
Several key improvements have emerged during the past couple of years making VOIP technologies ready for prime time. The first of these improvements has been the proliferation of IP networks
and broadband access throughout the world, and the reliability of Internet infrastructure. In addition, VOIP network infrastructure and sophisticated IP phones can now support Quality of Service
(QOS) to ensure that data packets carrying voice calls are routed with high priority in the network
so that a telephone call is delivered clearly, reliably and without distortion.
Finally, VOIP-enabling protocols have also matured. The oldest and most basic packet voice protocol is H.323, which has been in use for almost a decade. Later improvements include a proprietary
standard developed by Cisco Systems called Skinny Client Control Protocol (SCCP), and Media
Gateway Control Protocol (MGCP), which have taken steps to improve the QOS signaling controls.
Most recently, the VOIP industry is converging on Session Initiation Protocol (SIP), a simplified protocol that is more compatible with the Internet. With the majority of equipment providers moving to
embrace SIP, at long last users need not concern themselves with protocol details, knowing instead
that the world is moving toward a single VOIP protocol standard.
Most importantly, however, the cost savings of VOIP have become so significant that many users
can no longer ignore it.
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Leveraging Voice Over IP for Tangible Business Results
“...the cost savings
of VOIP have become so significant
that many users
can no longer
ignore it”
An Economic Decision
Most telecom service providers and hardware vendors agree that all telephony networks will
eventually use VOIP technology. For service providers who offer both voice and data services, it
is a cost-effective decision to migrate traffic onto a single data network, managing voice communications as just another data application. Instead of operating two separate networks – each with
its own costly equipment – service providers can merge all services onto a single data network,
eliminating huge costs and passing on savings to customers. However, since many of the largest
service providers have billions of dollars of legacy telephone equipment, it may take them years to
fully transform their networks to IP. This situation provides opportunities for smaller, more nimble
providers to service their customers with leading-edge VOIP-based solutions.
In the consumer market, many residential users are beginning to adopt VOIP technologies that
carry voice and data over a single broadband connection. Instead of paying for two or three connections coming into their home, many users would rather consolidate services over a single broadband pipe. Services like Vonage, AT&T’s CallVantage, and Verizon’s VoiceWing are all touting their
ability to offer customers unlimited local and long distance calling for one low monthly rate. While
VOIP is still in its infancy with less than 1% penetration, 2004 has seen these companies make
a heavy marketing push for consumer-based services. It remains to be seen how quickly these
services will catch on with less technology-savvy consumers.
Business users have perhaps the most to gain from moving to VOIP technologies, yet this market
has seen the least movement. This is due in part to the fact that business service is a moneymaker
for traditional telecom service providers, and carriers are in no hurry to cannibalize their own revenues. In addition, since business users are most sensitive to quality of service and high reliability,
some businesses have been hesitant to adopt the new technologies for fear of service interruption.
But, with the maturing of VOIP protocols and QOS controls, this could finally be the time for the
business community to make this change.
Comparing Total Cost of Ownership
The best indicator for measuring the overall economics of any business investment, such as a new
business telephone system, is to look at the total cost of ownership (TCO). TCO measures both
the upfront capital expenditures (CapEx) and the ongoing operating expenses (OpEx) required to
maintain the equipment throughout its lifetime. Unfortunately these OpEx figures often get overlooked. More often than not, however, it is the OpEx that determines whether or not an investment
has made a positive or negative return. When analyzing any new technology, a company’s TCO
analysis should also factor in productivity improvements delivered by the enabling technology. And
most importantly, because TCO measures costs over the full lifespan of the technology, TCO analysis should use a discounted cash flow methodology to factor in the time value of money.
Leveraging Voice Over IP / 3
Leveraging Voice Over IP for Tangible Business Results
“Hosted IP voice
services (also
known as IP
Centrex) offer
companies a
way to combine
the centralization
and simplified
management
aspects of a
virtual PBX, with
the technical
and cost-saving
advantages
of VOIP”
Total Cost of Ownership (TCO) Comparisons
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
GlobalTone
Hosted IP Voice
IP-PBX
TDM-PBX
Centrex
Current
Phone System
By considering all three components of TCO when evaluating alternative phone solutions, you can
ensure an “apples to apples” comparison. In all cases, a robust CapEx analysis should include
both initial capital expenditures as well as upgrade costs during the later years. Typical CapEx
items in this analysis include:
•
•
•
•
•
•
•
Initial system hardware, such as equipment chassis, line cards, and telephone sets
Racking and connectivity hardware such as wiring, termination, and cross-connects
Power and HVAC systems required for reliable operation
Initial software licensing or right-to-use charges
Hardware upgrades such as expansion modules and additional telephones
Additional connectivity and ancillary equipment for office expansion or satellite locations
Software upgrades
When considering a full analysis of OpEx, it is important to include the following expenses:
•
•
•
•
•
•
•
•
Monthly local and long distance charges
PBX analog or digital trunk charges
Monthly leased lines between sites
Annual maintenance contracts
System upgrade charges for moves, adds and changes
Loaded labor rate for telecom maintenance staff
Power, HVAC, and space charges
Ancillary services such as conference calling, web conferencing, fax lines, etc.
In addition to CapEx and OpEx, a robust TCO analysis should assess increased employee productivity brought about by the new phone solution. Most economists acknowledge that productivity improvements are the single biggest factor for technology-related economic expansion. Have
Leveraging Voice Over IP / 4
Leveraging Voice Over IP for Tangible Business Results
“Typical business
solutions...all fail to
take advantage of
the convergence
of voice and data
enabled by VOIP
technology”
these improvements enabled your employees to focus on revenue generating or cost-saving activities leading to a positive impact on your company’s bottom line? An improved phone system may
include the following features that could help your company improve productivity:
•
•
•
•
Remote environment, to support initiatives such as telecommuting and office hoteling
Unified messaging which provides single access to voice mails, faxes, and emails
Find me / follow me features which enable single number access for individual users
Web-based integration with contact manager software which provide “click-to-talk” access solutions
Typical Business Solutions
Most business phone systems fall into one of four categories – analog lines, key systems, private
branch exchanges (PBXs), or Centrex services based on time division multiplexing (TDM) technology. Analog lines are typically used by very small companies who have just a few lines within an
office. Key systems provide additional functionality by allowing up to a few dozen phones to share
several analog lines, while providing some additional features such as station-to-station dialing,
voice mail, and conference calling. Larger scale offices typically opt for PBX systems, which utilize
analog or digital trunking between the company and the local service provider, and can accommodate companies with thousands of users. Centrex is essentially a “virtual PBX” system that allows a
company to lease lines and phones directly from their local service provider, while receiving many of
the benefits of having a PBX, without the hassle of owning and maintaining any PBX equipment.
While each of these services offers its own pros and cons, they all fail to take advantage of the
convergence of voice and data enabled by VOIP technology. As a result, companies that utilize traditional business telecom systems must still maintain two different networks – one for voice and one
for data. Typically that requires separate trunks for Internet and voice, not to mention leased lines
between remote offices. This is the very scenario that today’s communications service providers
are migrating from as they build and manage their own next generation networks.
In addition to traditional TDM systems, the majority of PBX vendors have been offering IP-based
PBX solutions for the past several years. While these solutions help businesses save money by
routing telephone traffic over a company’s internal data network, they still require huge upfront capital expenditures in order to upgrade a TDM PBX or migrate to a new IP PBX altogether. In many
instances, IP-based PBX systems may cost several hundred thousand dollars, not to mention the
ongoing expenses related to upgrading and maintaining these systems. And because the majority
of these IP PBX systems focus on using VOIP over the enterprise data network, many companies
do not take advantage of the true cost saving capability of routing long distance calls over the Internet.
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Leveraging Voice Over IP for Tangible Business Results
“One of the most
compelling reasons
to move to a VOIP
service is to take
advantage of free
local and on-net
long distance
calling”
Hosted IP Centrex - The Best of Both Worlds
Hosted IP voice services (also known as IP Centrex) offer companies a way to combine the centralization and simplified management aspects of a virtual PBX, with the technical and cost-saving advantages of VOIP. Hosted IP voice services move the business telephone system out of your office
and onto a managed subset of the public Internet, while utilizing quality of service controls brought
about by the latest VOIP technology improvements to maintain enterprise-class reliability.
Hosted IP voice services can also dramatically reduce your company’s communications costs. By
eliminating the need to purchase PBX hardware, hosted IP solutions minimize up-front and ongoing capital expenditures. Hosted IP systems can also significantly reduce annual operating costs
by linking numerous remote locations into a single centralized system with a simplified web-based
interface to manage moves, adds, and changes. Because there is no system to buy and all hardware and software upgrades are managed by the service provider, there is also a reduced risk of
technology obsolescence. Even the phones are upgradeable – by installing a new software image
the phone can be updated from MGCP to SIP protocol, or even future SIP improvements that may
include new features and services.
One of the most compelling reasons to move to a VOIP service is to take advantage of free local
and on-net long distance calling. Since intra-company calling typically represents between 30 and
50% of a company’s calls, a hosted IP service with free on-net service can represent thousands in
savings just from this feature. Furthermore, since the Internet is not limited by geographical boundaries, VOIP technology can dramatically cut your long distance bill no matter where in the world you
are calling.
In addition to cost savings, hosted IP voice services offer numerous new features and productivity
improvements that even the latest IP-based PBX systems have trouble matching. Hosted IP voice
services offer all of the basic telephony and PBX features such as voice mail, auto-attendant, hunt
groups and 4-digit dialing. In addition, hosted IP voice services offer features such as a personal
communications manager (PCM) web portal that allows the user manage all aspects of their phone.
PCM features may include a detailed call log and contact list, “click-to-dial” capabilities, Microsoft
Outlook contact integration, and user-configurable find-me / follow-me service that can forward to
any phone number such as your cell phone or home phone. A user can even define custom call
treatments based on the incoming number, or time-of-day routing – all at the click of a mouse.
Hosted IP voice services may also offer unified messaging, which allows the user to receive voicemail, faxes, and email through a single mailbox. Coupled with both web and phone conferencing
capabilities, these services enable many of the productivity enhancements that cannot be matched
by simple PBX implementation.
Finally, in a post-9/11 era when IT professionals are focused on disaster recovery planning, hosted
IP voice services offer an off-site, redundant platform that can easily be reconfigured in the event
of catastrophic failure. Because the phone system is housed off-site and is accessible through
any active Internet connection, destruction of a company’s infrastructure will not impact its phone
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Leveraging Voice Over IP for Tangible Business Results
“In a post-9/11 era
when IT professionals are focusing on
disaster recovery
planning, hosted IP
voice services
offer an off-site,
redundant platform
that can easily be
reconfigured in
the event of catastrophic failure”
system. A hosted IP system can be reconfigured within minutes to ensure that calls are re-routed
to working telephones, such as mobile phones or telephones in other company locations.
Run The Numbers and See For Yourself
There’s no doubt that hosted IP voice services have the edge over traditional key systems, PBX
systems, and IP PBX solutions from a qualitative standpoint. But quantitatively, how do these options compare? Let’s look at some representative numbers to perform the complete TCO analysis:
• CapEx – Since there is no PBX equipment to buy, and no hardware or software upgrades to purchase, this could represent a savings of $10,000 for a small system to upwards of $100,000 for dozens of users with several remote sites. And while IP phones
may currently be slightly more expensive than proprietary PBX phones, they also offer
a migration path to future technology enhancements. Depending on the VOIP protocol
in use, a QOS appliance (similar to a standard IP router) may also be required, but this
cost is minimal in comparison to a full PBX, and may not even be required for SIP implementations. Finally, since the service provider hosts the equipment centrally, there is no
cost for future hardware or software upgrades.
• OpEx – As discussed earlier, free on-net calling may represent the single most important savings for the average company. And since hosted IP voice services can operate through your existing Internet connection, there is no need for separate telephone
trunks or lines to carry your voice calls. Companies can also eliminate leased lines
between locations that are dedicated for voice calls. These two items alone can save
an average of $7,000-$12,000 annually per T1 line, per location. In addition, with no
maintenance contracts or service calls required, simplified administration for moves,
adds and changes, and no power or space considerations for housing equipment, companies can save literally thousands of dollars per month.
• Productivity improvements – Quantifying the productivity improvements offered by hosted IP voice services may prove to be more of a challenge. However, when you consider
the flexibility offered by these services and the average loaded labor rate of any professional easily reaching $100,000 per year – even a tiny increase in productivity, say 2%
to 5%, for each employee can translate into hundreds of thousands of dollars per year.
There are several case studies available that demonstrate the annual cost savings of thousands of
dollars over the lifetime of the system. In one case, a hospital in Long Island, NY cut its telecom
expenses by more than 40% and saved almost $1 million in its 1000 seat implementation by using
a hosted IP voice solution to replace 21 separate PBXs.1
In most companies with fewer than 1000 employees, the decision to move to a hosted IP system
can lead to annual savings of up to 30% over their existing phone system, and up to 50% when
comparing hosted IP voice to a new PBX build. Typical implementations result in full payback in
12-18 months. The best candidates have between 10 and 500 employees, have remote offices,
and are striving to embrace technology to give their companies a competitive edge.
1 “VoIP: Just what the doctor ordered”, Dennis Pappalardo, Network World, September 13, 2004
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About GlobalPhone Corporation
GlobalPhone is a facilities-based carrier providing telecom solutions to 600,000 customers in over
130 countries using its state-of-the-art TDM and Voice Over IP network. GlobalPhone maintains
business relationships with many of the world’s top carriers, and provides its award-winning
GlobalToneSM hosted IP Centrex services through the Level(3) Enabled Partner Program.
GlobalToneSM is a hosted IP voice service with free local and on-net calling, web-based personal
communications manager, unified messaging, voice and web conferencing, remote calling and
Microsoft Outlook integration. Service packages start as low as $25 per user per month.
For more information or to request your free TCO analysis, please visit us online at
www.gphone.com/globaltone.
137 North Washington Street, Suite 200
Falls Church, Virginia 22046 USA
(703) 584-4360
www.gphone.com
Copyright © 2005 GlobalPhone Corporation. All Rights Reserved.